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Mar 5, 2018

Loonie slumps to near 8-month low as Trump squeezes NAFTA partners

McCreath: Loonie weakness likely more tied to Poloz than to potential trade war


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TORONTO - The Canadian dollar weakened to a nearly eight-month low against its U.S. counterpart on Monday after U.S. President Donald Trump used proposed tariffs on steel and aluminum as a bargaining chip in talks to revamp NAFTA.

Trump is expected to finalize the tariffs later in the week. He appeared to tie possible exemptions for Canada and Mexico to a "new" North American Free Trade Agreement as well as other steps.

Canada is the largest supplier of both steel and aluminum to the United States. Its commodity-linked economy could be hurt if NAFTA were to collapse or if more protectionist trade policies were to lead to a slowdown in global trade.

At 9:18 a.m. EST (1418 GMT), the Canadian dollar was trading 0.7 per cent lower at $1.2976 to the greenback, or 77.07 U.S. cents. The currency touched its weakest since July 7 at $1.2982.

Losses for the loonie came after data on Friday showed that Canada's economy grew by an annualized 1.7 per cent in the final quarter of 2017, short of the Bank of Canada's forecast of 2.5 per cent. The central bank is expected to leave its benchmark interest rate on hold at 1.25 per cent at a policy announcement on Wednesday.

Domestic trade data for January is also due on Wednesday and the February employment report is due on Friday. Speculators have cut bullish bets on the Canadian dollar for the third straight week, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed on Friday.

As of Feb. 27, net long positions had fallen to 22,220 contracts from 23,127 a week earlier. The price of oil, one of Canada's major exports, was little changed.

U.S. crude prices were up 0.05 per cent to US$61.28 a barrel. The U.S. dollar rose against a basket of major currencies as an inconclusive election in Italy weighed on the euro.

Canadian government bond prices were higher across the yield curve in sympathy with U.S. Treasuries. The 10-year rose 36 Canadian cents to yield 2.154 percent. The 10-year yield touched its lowest intraday since Jan. 17 at 2.148 per cent, while the gap between it and its U.S. equivalent widened by 2 basis points to a spread of -67.8 basis points, its widest since June 12.


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